A method of assigning contracts where a new contract is formed between the old and new parties.
***
UK: a process whereby a new contract is substituted for an existing contract, the latter being cancelled; such a process requires the agreement of all parties to the original contract.
***
REINSURANCE: A three party reinsurance transaction wherein a new party “steps into the shoes” of the party to an existing contract. The substitution of a new contract, debt or obligation for an existing one, between the same or different parties. A novation may substitute a new party and discharge one of the original parties to a contract by agreement of all parties. The requisites of a novation are 1) a previously valid obligation; 2) an agreement of all the parties to a new contract; 3) the extinguishment of the old obligation; and 4) the validity of the new obligation.
***
UK: The agreement to substitute a new contract for an existing one. It happens when insurers agree to transfer a policy from one person to another as, for example, when insured property changes hands. The insurer’s consent is required as most contracts of insurance (life and marine contracts excepted – see assignment) are personal contracts.